Digital Transformation: A Force of Nature and the Elixir of Life

Digital transformation has graced society—and thus also economy—with its presence for many years now. It can destroy companies or breathe new life into them as new forms of business emerge: depending solely on the mindset and willingness of any given company to keep learning against the backdrop of a challenge that presents unimagined opportunities but also risks for every industry. New technologies, however, are not (always) responsible for this digital transformation. So, just what are the key drivers? What is the true essence of this evolutionary change? And, above all else, what does it take to successfully transform a company from a digital perspective?

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Citius, Altius, Fortius…

It is the nature of humankind to strive for the ever faster, higher and stronger: thus making everyday life easier and optimized to the greatest degree possible. From the invention of the wheel more than 5,000 years ago and the "enlightenment of man" to the 14th century printing press and the development of the steam engine/ industrial revolution at the end of the 18th century, mankind has made great progress across all areas of life as time marches on.

A similar development—yet one that has progressed much faster and arguably had an even greater impact on our history—is the development of the first programmable calculating machines that began in the mid-20th century and went on to transform our world. From the first mainframe computers/subsequent network and the so-called "Arpanet" to the commercialization of the World Wide Web and our globally networked world, it’s now virtually impossible to imagine everyday life without the Internet. Hardly any action in our daily business functions in the absence of digital influences today, and the manner in which people manage their everyday lives has changed more drastically in the last 100 years than in the 1000 years before that. Digitalization is now firmly entrenched in our lives, and the speed with which innovation and development continue to advance truly boggles the mind. If you are reading this article on a device that has the computing power of (at least) an iPhone 11, you are holding something that boasts more than 1 million times the computing power of the computer that brought Neil Armstrong and Co. safely to the Moon and back to Earth just over 50 years ago.

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Digitization, digital transformation or disruption?

The fact that we now wear a weary smile when considering the technical masterpiece that is this hardware and software points to such rapid development over the last 50 years. Yet, is this development digitalization, digital transformation or pure disruption? Let's aim to bring clarity to this confusion of words.

First and foremost, digitization involves mapping analog processes or data in digital form as the basis of this entire development and is understood as any form of modified process that includes digital components. Digital transformation, meanwhile, is more specific: generally referring to the gradual transition of an economy/society and primarily characterized by analog technologies that morph into an age defined by their digital counterparts. In contrast to?disruption—which occurs suddenly and abruptly—this is an ongoing and, above all, far-reaching process of change triggered and accelerated by increasingly powerful technologies.

In other words, digital transformation is driven by changing consumer behavior and is thus inherently?responsive: with this shift leading to new or evolved needs that are typically no longer adequately satisfied by a company’s current product offering(s). Accordingly, businesses must adapt their products and processes in order to continue to exist (and thrive!) in the market. In contrast, new technologies or application possibilities trigger?disruption, which leads to a change in consumer behavior. Consequently, disruption is inherently?active.

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What paves the way for digital transformation success?

With digital transformation established as a reactive process essential for long-term company survival, the question remains: How can we shape this transformation in a successful, profitable manner?

Successfully executing a digital company transformation requires far more effort and coordination than most executives even realize. Even if the?awareness?is there, the novelty of the challenge often means that the approach, methodology and/or perhaps even the knowledge is lacking. Nevertheless, the potential of new technologies is simply breathtaking. Since the afore-mentioned invention of the computer and global Internet access that took hold a few decades later, the innovation cycle has only gotten more condensed; what is cutting-edge today will become obsolete in just a few years, especially with respect to hardware. What will remain, however, are new concepts primed to have a lasting impact not only in our business lives but in our personal lives as well. So many examples of this exist today including artificial intelligence, blockchain and 3D printing—to name but a few.

Even if these technologies become easier and easier to use, how exactly a specific technology contributes to transformation possibilities is enormously complex: including how to apply it to address specific company challenges and integrate it into existing processes. Complicating matters further? Some companies have diverse embedded legacy systems that are extremely difficult (if not impossible) to replace or change, not to mention the fact that many business owners have lost confidence in their IT department's ability to drive change. After all, IT tasks are primarily designed to keep day-to-day business operations afloat while functioning as a kind of emergency department that fights any fires that break out in the process (e.g., problems that arise and hinder day-to-day work). Nevertheless, digital transformation must involve institutional IT to restore this trust.

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That brings us to the next point left to the devices of IT infrastructure: data. In today's world, data is arguably the most important resource a company can possess. Unfortunately, most data currently in company hands fails to meet even the most basic requirement standards. Successful digital transformation requires much better data analysis and, in turn, improved data quality. It also calls for an understanding of vast amounts of new internal and external data—including its integration into the new system—while old, unused data is sorted out. Overall, an interesting paradox is thus observed: Most companies know that data is important and quality is poor, yet they waste enormous resources in failing to define the right roles and responsibilities.

While infrastructural adjustments are relevant and an important component, successful digital transformation requires a mindset shift—especially at the?process?level—dictating a complete rethink. How are customer needs satisfied? How will the company manage its customer approach in a new way? How can an organization seamlessly integrate various work steps into the process? Which steps are perhaps superfluous? Process orientation shines through as an obvious answer to these questions, but process management operates horizontally and across business units: which is often very difficult to reconcile with the traditional, hierarchical company mindset. If this shift in thinking does not take place, digital transformation is thus reduced to a series of step-by-step improvements that are helpful but do not represent true company transformation.

A willingness to change

So far, much has been said about the technological side of digital transformation—and rightly so! However, keep in mind this change not only impacts company processes but also daily employee work. Traditionally, innovations—even if they objectively simplify many tasks and generally make everyday work easier—are often met with a very critical eye. Juggling these new responsibilities requires one to step out of his or her comfort zone and is associated with a corresponding amount of uncertainty at a personal level. After all, skills employees have perfected over years (or even decades!) suddenly become obsolete, and employees themselves can feel superfluous. However, many don’t realize it’s in fact the?people?who are the quintessence of this change: as the central elements of digital transformation, from the creation of an appealing vision and plan formulation to the ability to act with short-term agility, all revolve around company leadership and employees. Above all else, digital transformation is about capable and motivated people. In fact, assembling a team of individuals from different fields in the name of successful collaboration—with a strong leader who can incite change—is arguably the most important step a company can take in this process. A willingness to change is summarized by several attributes or character traits including leadership, courage, emotional intelligence and teamwork.

The core message behind all of the above is quite simple: without people, digital transformation is impossible. Various infrastructural basics are of course necessary as well, but the focus must absolutely remain on people and the evolution that occurs within the employee environment. Meanwhile, "Digital transformation is a matter for the boss" has become such a ubiquitous tenet that a quick Google search for this phrase will probably pummel any interested party with a plethora of articles revolving around this very statement. The importance of readiness for change at the boardroom level is worth mentioning here, and while driving digital transformation forward is certainly not an insurmountable task, it must always be considered in the overall context of the company as an indispensable matter for the boss.

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Nothing other than change management

Digital transformation is often seen as this novel "thing" for which experience is lacking, explaining the aversion some decision-makers have to the topic. This undertaking is actually a classic concept, however, as digital transformation is truly nothing other than a new form of change management and evolution. The difference between change management in the classic sense and digital transformation is merely the degree of complexity, which has increased considerably; but what do we mean by this? On one hand, the pace of change has seen a dramatic boost with the advent of these new technologies; on the other, the rise of global networking in fact dissolved market boundaries that for so long acted as natural barriers and thus a safeguard of sorts. Let’s consider an example of this. In the past, hotels only faced competition from?other?hotels with respect to overnight stays in a specific locale; today, however, the rise of Airbnb and Vrbo have helped countless private individuals completely disrupt and transform the market in the absence of any additional infrastructure. Twenty years ago, no hotel owner would have considered the student flat-share located three streets away competition—which is, of course, no longer the case. Plenty of similar examples abound, but upon closer inspection, you’ll notice that most of today's lauded companies boast very little technical innovation of their own: another characteristic distinguishing these companies.

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Technology vs. business models

If we abstract the construct, it quickly becomes clear that business is very rarely about the technology itself. Rather, it’s about the underlying business model: which can be improved, accelerated and/or strengthened by these new technologies. What this means, therefore, is that technologies and technical innovation are merely a means to an end. Upon closer inspection, one realizes that the disruptive medium is not the technology itself but instead the business idea behind it. How many of today’s companies are truly grounded in technical innovation? Dare we say that very few organizations actually feature a code or hardware as their disruptive element? To illustrate this idea, let's focus briefly on Apple—or, more precisely, on the first iPhone. Provocatively formulated, the iPhone was in fact not (completely) made from scratch; touchscreens (aside from Apple’s proprietary Retina display), the Internet, large devices equipped with the Internet, cell phones, etc. already existed. What?did not?exist was a simple system that united all these technologies into a novel product one’s hands could intuitively operate; this was the business idea and the?thinking?within this ecosystem. It did not require a whole lot of innovation in the sense of new technology development and instead called for the precise analysis of existing technological means and trend identification—and, eventually, generating an idea that elaborated on a strategy designed to combine these trends and technologies into a successful business model. This process requires clever minds primed to dissemble existing structures and explore new frontiers. It also needs an openness to change and the courage to think in new ways and from the customer's point of view. Something to?always?consider when developing new business models in the digital context, however, is the underlying need for a problem. Because in the absence of a problem, a corresponding solution is obviously not necessary. Do you think Neil Armstrong’s space suit would have come to fruition had man never taken to the skies?

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So, what does this really boil down to?

In 2023, terms such as "digitization" and "digital transformation" have long since joined the everyday vernacular of key business decision-makers. We ourselves deliberately used a few of these words to differentiate between various terms earlier on in this article. In the end, however, none of this matters; a clear delimitation of these terms and topics is simply not necessary. It is instead the stuff of a fluent transition and semantic "hair splitting," at the end of the day. The fact is that change is happening with human beings as the driving force behind this construct. Moreover, digital transformation is not just hype but a sustainable and fundamental shift in the entire economic structure.

Time and again, people philosophize about digitization or digital transformation and view the construct as a straightforward, one-dimensional pursuit. From our point of view, however, this could not be further from the truth. These phenomena are not straightforward and certainly not one-dimensional. They’re also not about a single market nor adhering to traditional boundaries and barriers of established structures from previous decades—or even centuries! Transformation (whether digital or analog) is everywhere, inching its way into the smallest niches and farthest corners of the economy and our everyday lives. It will reach every market, every industry, every company sooner or later. The question of whether or not this trend will impact your company is no longer at play: it’s instead a question of?when. However, in most cases, it’s already happened.

This upheaval we now find ourselves in is essentially summarized per a few distinct points:

1.?????The transformation is already in full swing, whether you want to admit it or not.

2.????It is a force of nature as both an opportunity and a danger, depending on what you make of it.

3.????It needs people who are willing to drive the change, starting from the top.

4.???It takes courage to break new ground and demolish tried-and-tested structures in order to seize the market over the long term.

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To end on a philosophical note, Bruce Lee once said, “Be like water making its way through cracks. Do not be assertive but adjust to the object and you shall find a way around it or through it. If nothing in you stays rigid, outward things will disclose themselves." Although this metaphor relates to humans, it also applies to your business with respect to digital transformation. As both a force of nature and elixir of life, the water (i.e., one’s approach to this concept) depends solely on the attitude of the individual or, in this case, the company.

"Be water, my friend."

Written by: Yves Schlegel